Aware Responsible Committed Our Corporate Responsibility
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ARC ENERGY TRUST
Our Corporate Responsibility
ARC ENERGY TRUST
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3
President’s Message
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Environment
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Health and Safety
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Communities
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Economic Impacts
About this Report
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Governance
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Employees
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Performance Summary
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Aware Responsible Committed At the core of ARC’s vision and values is a commitment to our community, our employees, our unitholders, our stakeholders and the governments and regulatory agencies we work with. Corporate responsibility to us comprises a commitment to operate our business honestly and with integrity and to implement the best business practices in our day-to-day operations. We commit to use fair labour practices and recognize that respect of individuals is paramount. We are passionate at minimizing the impact our operations have on our environment. Corporate responsibility requires the focus to be a profitable entity that delivers consistent contribution to the economy by balancing responsible operations with environmental sustainability, leadership in safety and community giving.
OUR CORPORATE RESPONSIBILITY
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Corporate Profile
BRITISH COLUMBIA
ALBERTA
NE BRITISH COLUMBIA & NW ALBERTA
SASKATCHEWAN
MANITOBA
NORTHERN ALBERTA
DAWSON GRANDE PRAIRE ANTE CREEK
REDWATER
PEMBINA
REDWATER
EDMONTON PEMBINA CENTRAL ALBERTA
RED DEER DELBURNE SE ALBERTA & SW SASKATCHEWAN
VANCOUVER
CALGARY JENNER
HORSHAM HATTON CRANE LAKE
MEDICINE HAT
ARC Energy Trust (“ARC” or the “Trust”) is an oil and natural gas producer headquartered in Calgary, Alberta. The company is currently structured as a royalty trust with an enterprise value of approximately $6 billion at July 15, 2010. ARC was founded in 1996 and began trading on the Toronto Stock Exchange in July of that year. ARC acquires and develops high-quality, lower-declining oil and natural gas properties in western Canada. ARC’s operations span across western Canada: Northeast British Columbia/Northwest Alberta, Northern Alberta, Redwater, Pembina, Central Alberta, Southeast Alberta/Southwest Saskatchewan and Southeast Saskatchewan/Manitoba.
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SE SASKATCHEWAN & MANITOBA
REGINA WEYBURN LOUGHEED MIDALE
GOODLANDS
ARC’s field offices are located in: Drayton Valley, Estevan, Grande Prairie, Medicine Hat, Redwater and Red Deer. ARC’s unitholders receive a monthly cash distribution from the Trust’s producing oil and gas assets owned by ARC Resources Ltd. ARC plans to convert to a dividend-paying corporation on January 1, 2011 to address federal tax legislation for trusts effective as of that date. ARC Energy Trust Units trade on the Toronto Stock Exchange under the symbol AET.UN along with the exchangeable shares that trade under the symbol ARX.
About this report ARC uses the Corporate Responsibility (CR) report as a means to communicate with our stakeholders and as a tool to measure and monitor our performance in environment, health and safety, community involvement and employee management. As our corporate responsibility practice evolves so too will the manner in which we report on these performance metrics. We are focused on the continual improvement of this document and its content.
• Key performance indicators were determined through review of the Canadian Association of Petroleum Producers’ (CAPP) Stewardship Program, the Global Reporting Initiative’s (GRI) G3 Sustainability Reporting Guidelines, and stakeholder and staff input. Under the G3 we have achieved a C level of reporting according to the application levels laid-out by the GRI. The GRI index, in the back of this report, indicates the location of specific disclosures.
• This report covers performance for the years ended 2007-2009.
• Senior officers and relevant staff have reviewed all information in this report, and believe it is an accurate representation of our performance. ARC conducts a variety of internal and external assurance activities on information presented in this report, including financial, environmental, health and safety performance, management system and compliance audits. Third-party audit of this report at this point would be premature given our ongoing work to close gaps in our data management systems.
• References to “ARC” or “the company” mean ARC Energy Trust, its subsidiaries and joint venture investments, unless the context indicates otherwise. • As a result of continuous improvements in our data management systems, some data for the 2007 reporting year may be different in this report than in our 2007 report. • ARC commissioned a third party to review our 2007 CR report in order to identify areas of strength and areas needing improvement. Where possible, the recommendations were taken into account and applied to this report. • To improve the accessibility and readability of this report, ARC will make available a summary document available in print form, while the full report is available in electronic format on our website. Limited copies of the full report will also be available in print format. • All financial information is reported in Canadian dollars unless otherwise noted. Please refer to our 2009 Annual Report and Annual Information Form for more details on our financial performance. • Except where noted, data does not cover contractors or temporary employees. • Data measurement techniques and bases for calculations, if not obvious, are included with the data.
• ARC’s Health Safety and Environment Committee and ARC’s Board of Directors reviewed and approved the contents herewith. • Please visit our website for additional information (www.arcresources.com).
Advisory Regarding Forward-looking Statements This Corporate Responsibility report contains forwardlooking statements that may be identified by words such as “outlook,” “estimates” and similar expressions. These forward-looking statements are based on certain assumptions that involve a number of risks and uncertainties and are not guarantees of future performance. Actual results could differ materially as a result of changes to ARC’s plans, the impact of changes in commodity prices, general economic, market and business conditions, production development, operating performance and other risks associated with oil and gas operations.
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President’s Message
At ARC Energy Trust (“ARC” or the “the Trust”) we believe that a successful corporate responsibility strategy must begin with a
strong commitment from our board of directors and our senior leadership team. Our founding vision includes objectives to be a leader in the oil and gas industry. We believe that this translates into operating our business ethically and responsibly.
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To formalize our belief in strong social governance, we publish a corporate responsibility report every two years that outlines our activities in the areas of governance, environment, health and safety, community involvement and our contributions to our economy. Our first report was published in 2008 and highlighted our accomplishments, our policies and our practices in the core social responsibility areas since our inception in July 1996. That first report also underlined our desire and drive for continuous improvement. The objective of this report is to discuss the current initiatives underway at ARC, to report our results and to demonstrate our continued challenge to ourselves to do more in each area of corporate responsibility. In this year’s report we have expanded reporting in some areas as our internal systems become more established and provide additional information. We operate in all four of the western Canadian provinces: Manitoba, Saskatchewan, Alberta and British Columbia. Although we predominately focus on Canadian jurisdictional performance measures in our daily operations, we recognize the importance of corporate responsibility on a more global basis. To make our reporting meaningful to a wide variety of stakeholders, we report our information using the Global Reporting Initiative (“GRI”) guidelines. We also report at the Platinum level to the Canadian Association of Petroleum Producers (“CAPP”) Stewardship program. ARC is an intermediate-sized energy producer but we benchmark ourselves against our larger peers in the quality and transparency of our reporting and disclosure practices. We are passionate about ethical business conduct and strive for the highest standards in health, safety and environment with respect to our dealings with our many stakeholders and the communities where we operate. We are keenly aware that our performance is dependent on our people and their ability to be effective in their roles. I believe that one of the key roles of the president’s office here at ARC is to establish and sustain a culture where our 500 employees can thrive and succeed both personally and in their careers. By supporting our employees and providing them with a safe workplace they will put ARC’s vision and values into practice through their interactions with our stakeholders and the communities where we operate and live. It is our employees who execute our health and safety policies, strive to find better solutions for achieving environmental stewardship and reach out to our
communities through volunteerism. Our role as a leadership team is to demonstrate our values in our actions and to provide the necessary framework for these actions to take place. As you read this report, you will see our culture emerge. You will see a culture that gives back to our communities in the form of volunteer time and monetary support. You will see a culture that measures its performance and believes in doing more than is required for the simple reason that it is the right thing to do. In this report we will provide examples of projects we are undertaking that clearly quantify our accountability in the management of air, land and water – resources that we depend on for the successful operation of our business. The science of climate change is becoming the basis for new governmental policies and regulations. Any new regulations present a potential business risk to a company and ARC’s basic business philosophy has always been ‘risk-managed value creation’. Value creation is usually reflected through profit-making projects, but when it comes to corporate responsibility, value can be obtained through a positive impact on our environment, our communities and by mitigating our footprint on land, water and air. Several of the programs discussed are ARC initiated and are not mandated by any regulatory body. Protecting the health and safety of our employees, contractors and the public is of most importance to us. As we become larger in size, our challenge will be to ensure that we maintain an exceptional safety record. This can be achieved through continued education, a regular review of our policies and programs and by consistently adhering to the health and safety procedures we have in place. ARC has various projects to manage its responsibilities in respect to its impact on air, land and usage of water. Our programs are discussed in more detail in the environment section of this report. Briefly, some of these initiatives are as follows: To manage its impact on air, ARC has implemented an Ecoefficiency program. The Eco-efficiency program motivates our field employees to submit projects that may reduce ARC’s greenhouse gas (“GHG”) emissions during the course of daily operations. This is an ARC-funded project, with a stand-alone budget and a separate review committee to evaluate the projects submitted. Projects meet criteria that are meaningful and of benefit to the environment. To date 56 projects have been submitted, of which 36 have been approved. ARC’s eco-efficiency program created
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a greater awareness of GHG emission management amongst our employees and has provided ARC a framework to effectively respond to possible future, regulatory compliance obligations. In addition to our Eco-efficiency program we are at the forefront of Canadian technology in the testing of CO2 sequestration and currently have a CO2 enhanced oil recovery pilot underway at our Redwater field. To manage its impact on land, ARC has constructed its own soil treatment facility at Redwater. By building a local soil treatment facility, ARC reduces vehicle traffic and associated emissions by not having to transport the contaminated soil to a more distant third-party facility and reduces the costs of soil reclamation by 50 per cent.
To manage its impact in the use of water, ARC has co-developed a process that treats flow-back water from completion activities so that it can be re-used in fracturing projects in our Montney projects in northeast British Columbia. We assess our performance in each fundamental corporate responsibility area and improve our processes and policies continually. We know that ongoing improvement in each of these areas is a collective effort on the part of all of us and we encourage feedback on this report and its contents. Fundamentally, corporate responsibility is at the core of ARC. We believe it is very good business.
MYRON M. STADNYK PRESIDENT & CHIEF OPERATING OFFICER
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Our Corporate Responsibility
Management and Governance Throughout its history, ARC has been committed to strong corporate governance practices. Our view has always been that effective leadership is a critical component of success. ARC’s senior leadership team and Board of Directors developed strong values right at ARC’s inception in 1996. From the beginning, the emphasis was on building a culture of respect and integrity and in doing what is right, not just what is required. Corporate governance and corporate governance reporting is a continually evolving process. ARC’s goal is to be at the fore-front of governance practices and we work to meet or
exceed the guidelines of National Instrument 58-101 that regulates reporting and disclosure requirements for corporate governance. We recognize that the corporate responsibility metrics on which we report – health and safety, environment, our employees, communities and our impact on the economy – must be included in a formulated management approach and comprise our decision making right at the top levels of our organization. As such, ARC has developed numerous governance and management mechanisms to ensure that corporate responsibility is integrated throughout all levels of our company.
Health, Safety & Environment Committee of the Board
Assists the board in its responsibilities for oversight and due diligence by reviewing, reporting and making recommendations to the board and management on the development and implementation of HSE policies, standards and practices, particularly with reference to land, water, air and employee safety.
Human Resources & Compensation Committee of the Board
Assists the board in fulfilling its oversight responsibilities with respect to overall human resource policies and procedures and the compensation program for ARC.
Risk Committee of the Board
Assists the board in fulfilling its oversight responsibilities with respect to business risks and mitigation of those risks. Included in the mandate is the review of guidelines, policies and reports from management with respect to risk assessment, risk management and risk mitigation.
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Board of Directors ARC’s Board of Directors comprises nine members all of whom, except for the CEO, are “independent” directors within the meaning of Canadian Securities National Instrument 58-101. The Chairman of the Board is an independent director. ARC’s unitholders, shareholders and employees can provide input to the board through various channels. The annual general meeting process allows ARC’s unitholders and shareholders to introduce resolutions and topics of discussion. At each of ARC’s annual general meetings, an open question forum is made available to those attending the meeting. ARC’s board has a defined oversight role and a mandate to supervise the management of ARC’s business affairs to act with a view to ARC’s best interest.
Board Committees The board has established the following committees to address specific areas of ARC’s business activities: Audit; Health, Safety and Environment; Human Resources and Compensation; Policy and Board Governance; Risk; and Reserves. The mandate for each of ARC’s committees is available on our website at www. arcresources.com.
Risk Management As an oil and gas producer, ARC’s primary business is in drilling and producing oil and natural gas. Our operations have an impact on the environment and we balance our responsibility between providing good returns to our investors, meeting the needs of our employees and communities and mitigating our impact on land, water and air. There are many risks that could impact our ability to carry out our business. Along with a myriad of financial risks and economic risks some of the risks to our business can also relate to: regulatory and legislative risk due to the varied regulatory bodies that ARC reports to; possible regulatory changes and new legislation in climate change law and other
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related environmental regulation; changing labour guidelines or legislation; our ability to retain key personnel; declining oil and natural gas reserves through depletion; maintaining title to our properties; and regulation on how and where we conduct our business activities; and, regulations pertaining to our use of water, land and other resources.
Corporate Responsibility Management The strategic management for corporate responsibility is shared among several teams at ARC, specifically Health, Safety and Environment, Human Resources, Financial Reporting, Investor Relations, Land and Operations. These teams provide strategic level support to ARC’s senior management team. The daily management of corporate responsibility commitments and implementation of programs is led by appropriate managers within ARC’s organization, however the Chief Executive Officer and the President and Chief Operating Officer are ultimately responsible.
Policies and Corporate Responsibility Integration Corporate responsibility begins with the leadership but ultimately is enacted through the actions of every employee at ARC. Senior management has passed several mandatory policies that govern our behavior and ensure ethical and responsible operations. We have a Code of Business Conduct and Ethics that is signed by all ARC employees on an annual basis. This policy is the foundation upon which all of us here at ARC operate. It reflects our commitment to a culture of honesty, integrity, respect and accountability. The Business Conduct policy also outlines the basic principles and policies with which all employees of ARC are expected to comply. In addition to a wide-ranging Health, Safety and Environment Policy, we adhere to internally developed policies addressing: drugs and alcohol; harassment and discrimination; compensation, benefits and leave; and whistleblower protection. Whistleblower mechanisms are available to both the public at large and to ARC employees.
Stakeholder Engagement ARC defines its stakeholders as: employees, investors, suppliers and other business partners, the communities where we live and operate, including landowners on whose lands we operate, government and other regulatory agencies that we interact with, and the people of the provinces whose oil and gas we produce. We have always believed that stakeholder engagement sits at the core of corporate responsibility. Understanding what is important to our stakeholders facilitates solutions and helps us communicate our activities and results more efficiently. ARC communicates regularly to its investors through annual and quarterly reports, through news releases, the corporate responsibility report, through ARC’s website www.arcresources.com and through other disclosure and regulatory documents filed on www.sedar.com. ARC communicates directly with the landowners and communities through our land group and through open houses hosted in communities where we operate and through the daily interaction of our field employees in their respective communities. The open houses allow community members to interact with ARC employees and management and ask questions on our operations in their community or other communities. We also have contact information on our website at www.arcresources. com where members of the public can relay a question or concern to ARC.
ARC believes that open communication with employees is critical to our success as an organization. In addition to encouraging regular dialogue within and between different functional areas, ARC has several more formal means of communication with its employees. ARC’s senior management team conducts regular, quarterly presentations that communicate the company’s financial and operational achievements to our employees. The sessions also give senior management the opportunity to regularly reinforce ARC’s vision and values and provide information on activities pertaining to social responsibility and sustainability. ARC’s HSE group sends a quarterly newsletter focusing specifically on health, safety and environmental activities at ARC. On an annual basis we solicit input and feedback from our employees through the Strength of the Workplace survey. ARC communicates with governments and other regulatory jurisdictions through engagement and participation in public policy processes and discussions. ARC’s senior officers regularly meet with representatives of governing bodies to engage in discussion and exchanges of information pertaining to our business and to industry issues. Our Code of Conduct governs the political activities and contributions of employees and of the corporation. ARC does not contribute funds to any political parties in Canada or abroad. ARC participates in public policy debate on the federal and provincial level on subjects such as greenhouse gas legislation, provincial royalties and changes to tax regimes.
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Environment
ARC’s Environmental Management System is designed to ensure our business is conducted in a manner that meets or exceeds all applicable legislation, incorporates the best management practices, and responds to the needs and expectations of all ARC employees, contractors, regulators and the public. Minimizing the impact of our operations on the environment is a challenge that ARC is addressing strategically and progressively. Our focus over the years on broader environmental impacts (air, land and water) has provided a foundation to develop proactive and innovative projects beyond the scope of existing regulations and stakeholder expectations. This is best exemplified by the implementation of projects and programs like ARC’s EcoEfficiency Program, the soil treatment facility in Redwater, and the development of frac-water recycling technology in Northeast British Columbia.
Performance Our corporate GHG footprint remains split almost evenly between direct and indirect emissions. Direct emissions are those associated with fuel combustion, flaring, and venting. Indirect emissions are those associated with electricity consumption. Our direct GHGs increased in 2009 largely as a result of well-test flaring in British Columbia. As we continue to grow as a company and expand our development and production, our environmental footprint will also increase. In order to mitigate those future impacts, we have improved our data management systems, incorporated regulatory risk assessment into our capital planning, and used reporting mechanisms like the Carbon Disclosure Project (CDP) and CAPP Stewardship1 to evaluate our past performance and to plan for the future.2 In addition to our improved, internal tracking systems, we currently maintain two cash funded abandonment and reclamation funds. At year-end 2009, the balance of these funds stood at over $33 million. We continuously manage the integrity of our pipelines, facilities and associated infrastructure. ARC’s
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Corporate Greenhouse Gas Emissions (GHG) (Ktonnes CO2e/yr)
Production, & Emission Intensity
800
Water Use (m3/yr)
600 500
600 3.5
400
3.6
3.7
200
.21 .21 .22
0
725 750 806
400 300 200 100
07 08 09
07
Direct Emissions Indirect Emissions
08
09
0 07 08 09
Production (MMm3OE)
Carbon Intensity (Tonnes CO2e/m3OE)
Total GHG Emissions (Kilotonnes CO2e)
* In the 2008 Corporate Responsibility Report, our 2007 GHG emissions were reported as 689,747 tonnes of CO2 equivalent. This number has increased
in this report as a result of our improved data management system that provides a more accurate account of our emissions profile.
Asset Integrity group manages approximately 7,300 pieces of pressure equipment and 10,000 kilometres of pipeline, ensuring that license reviews, mapping, risk assessments and activities related to the company’s corrosion monitoring and mitigation programs are completed and that all information is up to date. Internal auditing is conducted on all fields to ensure that operating and maintenance activities are being performed and documented. All audits (internal and third party) are reviewed with management and programs are updated based on the results of the findings. By ensuring proactive management of our assets and liabilities, the risk to public, environment, employees and contractors is greatly reduced. ARC operates in four provinces; and as such, our operations must comply with four sets of provincial regulations, and in some cases, Canadian federal regulations. As a result, ARC is faced with the possibility of having to manage different thresholds, emission limits (absolute vs. intensity), reporting standards, compliance options, and baseline years.
The financial impact of these potential regulatory obligations is tracked and monitored internally. Pricing sensitivities such as the cost of carbon and the compliance mechanisms available to ARC such as offsets, credits and internal abatement are evaluated when determining the overall impact of climate policy on our operations.3 This evaluation provides management with a quantitative understanding of what the annual cost of compliance with Federal and Provincial carbon regulations might be. Based on our climate policy compliance models and the level of detail/rigor/assurance that we foresee being required to report GHG and carbon related data, we have focused our attention on data management and internal abatement via emission reduction projects.
Inline
in 2008 and 2009
testing at has amounted Greenhouse Gas & Air to the conservation Emissions Management 3 3
17 new drills
When it comes to greenhouse gas management, we are driven not only by the internal reductions we can achieve, but also by the belief that our level of effort to manage and offset our emissions should exceed our requirement. We have spent considerable time and resources on the development and implementation of CO2 storage projects in an effort to participate in a solution to an environmental issue that impacts the industry and public as a whole. If carbon dioxide emissions can be captured and used in enhanced oil recovery projects (EOR) we can take a waste product and create value for both the province and the local community through increased royalties and creation respectively. We have diversified our efforts in EOR development by conducting a pilot project in the Redwater field (currently underway), and exploring the viability of EOR in areas such as Pembina and Lougheed. There are not enough reservoirs in western Canada that are suitable for CO2 injection to support EOR as the singular means of carbon sequestration. Therefore, we are working in conjunction with the Alberta and Federal Governments to develop CO2 storage. As a leading stakeholder in a major CO2 storage project (the Heartland Area Redwater Project – HARP4) we have taken considerable action (and continue to invest heavily in this initiative) to support the sustainable development of the upstream oil and gas industry. 1 I n 2008 and 2009, ARC was recognized as a Climate Disclosure Leader in Canada by the CDP. ARC reports at the Platinum Level to the CAPP Stewardship program. 2 See ARC’s 2008 Corporate Responsibility Report for more details. 3 A RC expects that these regulatory requirements will not materialize until the 2012-2015 timeframe. 4 V isit our website for more information on this project (www.arcresources.com)
of 966 e m of natural gas, equivalent to approximately 2,400 tonnes of carbon dioxide equivalent (CO2e) Inline flow testing occurs when evaluating the productivity of a gas well. All of the test gas is captured, flowed through a temporary meter and test vessel, and directed down a pipeline for processing. Normally, the gas is flared during a well test for a period of about 72 hours.
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Air
Eco-Efficiency Program ARC’s Eco-Efficiency Program, launched in April 2009, focuses on funding energy efficiency projects and emerging technologies throughout our operations. This includes projects that reduce greenhouse gas (GHG) emissions, reduce fuel and electricity consumption, and utilize waste products while maintaining reliability and maximum production. An independent budget and a distinct set of hurdles (focus is on quantifiable GHG reductions more than economic payout) have been created to allow the Eco-Efficiency Program to push projects forward.
Performance: • 25 projects completed at a cost of $700,000 • Estimated reduction of 8,000 tonnes of CO2 equivalent per year • Contributes to local communities by hiring local contractors, expanding communication with landowners, and reducing pollution
Land
Redwater Soil Treatment Facility The Redwater In-Situ Soil Treatment Facility treats hydrocarbon contaminated soil so that it may be returned to the original site or to another formerly contaminated site as opposed to trucking and disposing the soil to the landfill (“dig and dump”). Along with mechanical turning of the soil piles, aeration, fertilizers, and nutrients are used to facilitate the biodegradation of the hydrocarbons. After nearly two years of planning, ARC completed the construction of the soil treatment facility in October 2008.
Performance: • The facility has the capacity to treat 30,000 tonnes of soil (equivalent to 20,000 m3) – enough to cover one football field with nearly 4 metres of soil. • To date, 5,000 tonnes of soil has been successfully treated • A minimum of another 5,000 tonnes will be treated in 2010
Water
Frac-Water Recycling ARC has developed a process to treat and recycle water used in the production of tight gas reserves. In doing so, ARC is the first operator to successfully apply water recycling to fracturing operations in northeastern British Columbia. This joint effort with Amperage Energy results in a decreased demand on the local water supply, and a reduced need for transportation and disposal of flow-back water. Based on the program’s success, the city of Dawson Creek has approached ARC regarding the application of this technology to a municipal water recycling facility. If successful, oil and gas operators will be able to use the city’s effluent water for fracturing, thereby decreasing the demand on the municipal water supplies.
Performance: • Successfully filtered flow-back water on seven horizontal Montney wells • 1,384 m3 of water re-used to date • 20-25 per cent savings on disposal, trucking, and fluid purchases
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Our Environmental Commitments
Moving Forward
In our 2007 Corporate Responsibility Report we set forth three environmental objectives. Here’s a look at our performance over the past two years relative to those objectives:
As we look ahead, ARC will continually strive to be in a position where we exceed our stakeholder expectations and continue with a proactive approach to environmental management by:
“ explore subject areas where we can set quantitative environmental targets” e have had an internal greenhouse gas reduction target for the W past two years. We are now expanding our internal targets to include water and air pollutants. These targets will take shape as we continue to refine our data management systems. “ refine our audit process by combining different types and assessing their effectiveness” Environmental audit processes have been refined to include:
1. Exploring innovative, emerging technologies that reduce our environmental footprint and can be applied throughout our operations and our industry 2. Applying best practices to all aspects of our environmental management system 3. Incorporating environmental risk assessment into our corporate growth model 4. Evaluating opportunities to significantly reduce our SO2 emissions by 2015 5. Continue to evaluate our water usage and track our consumption requirements
• the specific requirements of numerous regulatory agencies, • clearly documented accountability mechanisms and procedures to ensure audit findings are appropriately managed and communicated to affected stakeholders. These processes have been incorporated into our revised HSE Management System Manual, which will be fully implemented during 2010. “improve our measurement and records systems” In 2008, we purchased data management software that tracks environmental data (ie: air pollutants and greenhouse gas emissions associated with flaring, venting, combustion, etc. at a facility level). This has significantly improved our ability to monitor our environmental performance. Quality control and assurance of this data is ongoing.
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Health and Safety
Near-miss hazard identification reporting occurs continuously and detects unsafe conditions before they become an incident.
Health & Safety Management ARC is committed to maintaining a safe and healthy workplace for our employees and contractors. This reflects our belief that people’s safety is of paramount importance. To realize on this commitment, ARC has a detailed health and safety management system in place. A key component of ARC’s Health and Safety Management program is the internal responsibility system for safety. All employees within ARC, from the executives to the front line workers, are responsible for their own safety and the safety of others. We continually evaluate the effectiveness of our Health and Safety Management program to identify areas of improvement and to improve our health and safety performance. One of the key initiatives ARC has focused on over the course of 2009 is the identification of leading indicators such as near miss and hazard identification reporting. This program provides a zero cost learning tool to improving safety within the company. ARC places emphasis on the importance of this program. Considerable effort has been invested in the review and classification of these reports to identify common trends and communicate the knowledge gained to our employees and contractors. This level of reporting and tracking also provides a metric to evaluate our current policies and procedures and continually enhance our program. Some of the key initiatives in continuously improving are: • Continuous improvement and development of our HSE Management System • Increased safety communication from all levels of management within the organization • Safety leadership training for ARC supervisors and managers • Long-term relationships with key vendors
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Managing Employee Safety An important component to achieve our goal for an incident free workplace is communication. Since our last report, we have invested considerable efforts in communicating the safety message to our employees through safety alerts, bulletins and by increasing the presence of senior management in the field. Additional Health and Safety Coordinators have been hired in the field over the past two years to act as a resource to our employees and to increase the level of safety communication between field and office staff. We have focused our employee safety efforts on driver training. Driving is recognized as one of the most dangerous tasks our employees perform on a daily basis. As a result, all employees driving company vehicles receive collision avoidance and driver training to promote safe driving habits. In addition, ARC has a safe driving reward program to continually emphasize the importance of road safety. Through the use of driving metrics we will continue to evaluate new programs and initiatives to improve driving performance at ARC.
Lost Time Incident Frequency (Incidents per 200,000 hours worked)
Employee Lost Time Incidents
Contractor Lost Time Incidents
0.3
0.3
0.2
0.2
0.1
0.1
0
0 07
08
09
07
08
09
Employee Lost Time Incidents
Contractor Lost Time Incidents
CAPP Benchmark
CAPP Benchmark
Managing Contractor Safety Significant efforts are underway to improve the safety performance of our contractors. We have developed an effective contractor audit protocol that provides the opportunity to work closely with our contractors in improving safety performance collectively.
(1) The frequency rate is per 200,000 hours worked (equivalent to 100 person years), which is a standard measurement used by industry
(2) Contractor hours calculated based upon capital expenditures (3) 2009 CAPP data unavailable publication
In 2009, there was a decrease in the frequency of incidents from our contractors. As we continue to build strong working relationships and evaluate areas of improvement with our contractors we anticipate continued safety improvement. ARC continues to participate in Safety Stand Down, which is an industry wide initiative that encourages management to visit frontline workers to promote safety awareness. We feel that a visible presence from management in the field helps foster the strong relationships with contractors that are vital to the successful operation of our company.
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Health & Safety Contractor Workshop
Managing Public Safety
For the last six years ARC has conducted an annual health and safety contractor workshop with attendance from ARC consultants and employees. This annual training workshop is essential to ensure that our contractors and employees fully understand their safety responsibilities and are equipped with the tools to execute these responsibilities.
Our primary focus at ARC is on preventative measures to reduce the possibility of an emergency event from occurring. However, if an emergency does occur, ARC is prepared to effectively respond and manage the situation. Since our last report we have made significant improvement in the quality of training to our field responders ensuring everyone fully understands their roles and responsibilities in managing an event. This training includes detailing the structure of emergency management at ARC and table-top/mock exercises to ensure all responders can respond effectively in order to maintain public safety and environmental protection at all times.
Some of the key themes discussed at past workshops have included: Occupational Health & Safety Legislation Roles & Responsibilities for Safety Contractor Management Fatigue Management Incident Investigation Training Safety Documentation Emergency Response Training Safety Attitudes Hazard Identification & Controls Drugs & Alcohol Short Service Workers In 2010, as part of our annual workshop we will be conducting safety leadership training to help develop the skills and knowledge required for everyone to become safety leaders within ARC. The workshop has been extremely successful and we continue to receive positive feedback from all attendees every year.
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Moving Forward As ARC grows as a company, we continue to develop our HSE Management System and evaluate areas of improvement to achieve safety success. Some of the key areas we plan to develop and continually improve within our organization include: Training & Competency Fitness for Duty Contractor Management Journey Management Emergency Preparedness & Response The proactive safety culture we strive to develop remains paramount in our path moving forward.
Employees
At ARC, our strong track record of success has been built on our core belief that outstanding people, combined with a great corporate culture, create a winning environment. Our corporate culture is built on a foundation of mutual respect, regard for individuality and a healthy work-life balance. Every position is seen as important and we have developed a workplace environment that values the contribution of each employee. We offer the advantages of a growing company while striving to maintain a small company feel.
Our People Strategy
Our Commitment to Employees
Talent Retention
ARC operates in a competitive marketplace for the best employees with a wide range of talents. Our desire is to attract and retain the best and brightest people in our industry. To achieve this goal we have firm commitments to our employees. We will:
Strength of the Workplace Employee Engagement Survey
• Value all employees and treat people with dignity, respect, and fairness • Provide equal opportunity in all aspects of employment • Offer a competitive compensation package that rewards individual contribution and shares in the company’s success • Encourage continuous personal and career growth
Ensuring Ethical Conduct ARC is committed to ensuring ethical conduct and behavior of its employees and contractors. Our Code of Business Conduct and Ethics is the foundation upon which all ARC employees operate. It reflects our commitment to a culture of honesty, integrity, respect and accountability and outlines the basic principles and policies with which all employees are expected to comply. The Code addresses such issues as equal opportunity, harassment, conflict of interest, confidentiality, compliance, corruption and bribery, among others. The Code was reviewed and updated by the Policy and Governance Committee in 2009. Employees are required to annually sign off their review and commitment to upholding the Code. A hotline is available for employees to confidentially lodge any concerns about potential breaches of the Code. In 2008 and 2009 there were no reported breaches of the Code of Business Conduct and Ethics.
ARC’s people strategy is based on the guiding principle that all levels of management are responsible for attracting, retaining and developing our talent. To assist with this strategy, our Human Resources Department develops progressive initiatives and programs to ensure that our people practices are aligned to both employee and business needs.
Our Performance Since 2004, ARC has conducted a mandatory company-wide employee survey using a tool designed to measure the strength of our workplace. ARC’s 2009 employee engagement score is 88 per cent, which is consistent with the results of 2008. This is an outstanding achievement given the challenging business environment that we experienced in 2009. Over the past three years, ARC’s Strength of the Workplace survey has demonstrated that we have maintained the core elements of our culture during a time of significant growth for the organization.
Flexible Work Environment & Culture At ARC we believe that our employees deliver their best when they lead a well-balanced work and home life. To support this goal, ARC offers the following programs: • Computer purchase program • Education programs and regular lunch-and-learn seminars • Employee directed wellness initiative • Competitive vacation and flex days • Flexibility in work schedules to meet business and employee’s needs. • Business casual attire • Social events
Talent Attraction Strategic Workforce Planning Beginning in 2008, ARC has developed a formalized approach to forecast future talent requirements. Ensuring that we have the right people, in the right roles, at the right time is imperative to the success of executing ARC’s long-term business strategy. The Workforce Plan helps to identify key recruitment needs and allows us to proactively source for specific expertise.
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Summer Student Program
Succession Planning and Leadership Development
An important element of ARC’s talent acquisition strategy is our Summer Student Program. Students from various universities and backgrounds are hired into all facets of ARC’s business. Our focus is to provide meaningful work that will benefit both the student and the company. In 2008 and 2009 we hired a total of 17 and 21 students respectively.
ARC is committed to building leadership bench strength from within the company. We have implemented a systematic set of processes (Succession, Progression and Development) to encourage the personal growth and development of our high potential employees. In 2008 and 2009 we had 38 internal promotions.
Talent Development
Training
Mentorship
We fully endorse further education and life-long learning amongst our staff. We provide employees with financial support to assist them in continuing their education and staying current on technical advancements.
At ARC, we believe that people drive value creation. The Mentorship Program is aligned with our culture and reinforces the importance of career development. In addition to the benefits gained from informal mentoring relationships, the formal mentorship program has created broad learning opportunities to connect employees company-wide.
Employee Metrics Workforce 1
2007
2008
2009
465 396 378 18 69 19 50
493 429 403 26 64 15 49
514 450 427 23 64 15 49
Women in Workforce (%) Women In Supervisory/Professional Positions (%) Women In Management Positions (%) Women In Senior Leadership Positions (%) Women In Director Positions (%)
41% 31% 27% 0% 0%
40% 33% 29% 0% 0%
38% 34% 30% 0% 13%
Workforce Under the Age of 30 (%) Workforce between the ages of 30 and 50 (%) Workforce Over the Age of 50 (%)
22% 63% 15%
19% 66% 16%
20% 62% 17%
Full Time Employee Positions in the Workforce (%) Part Time Employee Positions in the Workforce (%)
95% 5%
94% 6%
95% 5%
4.83% 10.20%
6.71% 9.70%
4.35% No Data
Total Number of Employees Total Number of Permanent Employees Number of Full-Time Employees Number of Part-Time Employees Total Number of Variable Employees Number of Temporary Employees Number of Contract Employees
Diversity 1, 2
Turnover Rate 1, 2 ARC Turnover (%) Industry Turnover (%) 1 As of December 31 of the respective year. 2 Based on permanent employees only; data for variable employees is not available
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Our Corporate Responsibility
Communities
Community Investment 2009
• • • • •
Civic and Community Health and Wellness Environmental Education & Literacy Sports and Recreation Arts and Culture
ARC operates in four provinces in western Canada and our employees, our operations and our assets are all based within a community. As such we believe that it is our mandate to contribute to the well-being of the communities where we operate. ARC has consistently encouraged a corporate culture that embraces community involvement through volunteerism and financial support. ARC has three clear commitments to ensure responsible community citizenship: • We will communicate fairly and openly with communities in which we operate • Engage community residents and landowners in operating decisions • Contribute 0.5 per cent of our rolling thee year average net income to charitable organizations.
Our interactions with communities are focused in two areas: stakeholder engagement and community investment. Our stakeholder engagement is discussed in the “Governance and CR Management’ section of this report. Our community investments are concentrated on programs that address fundamental social issues such as poverty, child hunger, family violence and homelessness, among others. We also ensure that we support communities through health and wellness programs, arts, culture and education programs. In 2009, ARC contributed just over $1.6 million to community investment. We track our spending by focus area. There are many deserving programs that require funding in all communities. We cannot fund all programs and use a defined set of criteria to help us in our funding decisions. The criteria that are considered are as follows: • The extent of ARC’s presence in the area and involvement of ARC staff. • The charity fits with our values and our culture. • The soliciting organization is financially viable and efficiently and ethically managed. • The sponsoring organization is a tax-registered, non-profit group or its equivalent. ARC places high value on community investment and it frequently matches employee donations to various organizations. We know that many projects require several years of dedicated work on behalf of non-profit organizations and as such, ARC partners with various groups and provides multi-year commitments for funding special projects. A financial commitment that spans a period of several years allows non-profit groups to budget their services and programs more effectively.
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Figure 2:
Community Investment ($thousands)
2000 1800 1600 1400 1200 1000 800 600 400 200 0 07 08 09
Charitable Organization
Total Annual Commitment Commitment Commitment Term $ $
Canadian Center for Sports Excellence Glenbow Museum Sports Heroes United Way Homefront Alberta Mentor Foundation for Youth Renfrew Educational Services United Way “2335” Project U of S Engineering Advancement Fund Calgary Health Trust – Cancer Chair CPO Golden Baton Schulich School of Engineering (U of C) City of Dawson Creek Arts Centre Stardale Women’s Group
200,000 125,000 100,000 Open 200,000 45,000 45,000 90,000 60,000 500,000 Open 250,000 50,000 21,000
The $1.6 million dollars directed to not-for-profit groups both in Calgary and the field communities in 2009 is a lower amount than in previous years (see figure 2). This decrease over 2008 contributions reflects the lower revenues that ARC received in 2009 due to a challenging economic environment that prevailed globally. ARC dedicates approximately 20 to 25 per cent of our community investment budget to our field offices. The field offices make their own contribution decision as these pertain to the communities where they operate.
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ARC ENERGY TRUST
Our Corporate Responsibility
50,000 25,000 50,000 225,000 50,000 15,000 15,000 30,000 20,000 250,000 30,000 50,000 50,000 7,000
2011 2009 2010 to 2013 $ $ $
2006 – 2009 50,000 2006 – 2010 25,000 2008 – 2009 50,000 Open 225,000 2008 – 2011 50,000 50,000 2008 – 2010 15,000 15,000 2008 – 2010 15,000 15,000 2008 – 2010 30,000 30,000 2008 – 2010 20,000 20,000 2008 – 2009 250,000 Open 30,000 2008 – 2012 50,000 50,000 2010 50,000 2010 – 2012 7,000 14,000
25,000
50,000
100,000
2009 community investment by Geographic location Corporate – Calgary Central Alberta Estevan Medicine Hat NE BC/NW AB/Northern Alberta Pembina/Drayton Valley Redwater
$1,271,757 36,115 56,971 71,278 104,000 57,878 41,484
Total
$1,639,636
Economic Impacts
As a profitable oil and energy producer, ARC contributes to the wealth and prosperity of the Canadian economy. We create well paying jobs, we pay suppliers for goods and services, we pay taxes to governments and we contribute royalty payments to the provinces we operate in. We also pay landowners on whose lands we operate our business and we pay mineral rights to those who own them. We pay monthly distribution to our unitholders who can choose to re-invest this income back into the Canadian economy. These are all measurable contributions to the economy. ARC also creates non-measurable opportunities that eventually benefit our economy and our society. An example of non-measureable contributions would include enabling employees to further their education so they participate in our economy at a greater level. We construct infrastructure that can be used by others. In 2009, the economic environment challenged every business sector across the globe. As the economy spiraled into a recession, commodity prices fell sharply. WTI oil prices reached a low of US$33.98 per barrel and natural gas prices reached a low of AECO $1.86 per mcf. The oil and natural gas industry shut-in projects and laid-off many people to cope with the downturn as revenues declined across our sector. ARC could not control what was happening in the markets, but we did take actions that would manage the impact of the economic crisis on our business. We issued 15.4 million units in a bought deal financing in the first quarter of 2009. With the offering we raised approximately $240 million that helped to finance our 2009 capital program and positioned us to move forward with some expansion plans in our Montney gas area in northeastern British Columbia. We were pleased to not have to lay-off any of our employees due to the economic impacts; instead we became counter-cyclical and opportunistic in our recruiting by hiring some high-quality people. We also ran one of the largest summer student programs in our history. In spite of the economic uncertainty, we executed our capital program, albeit at reduced levels in the four provinces in western Canada where we operate: Manitoba, Saskatchewan, Alberta and British Columbia. By maintaining active operations throughout these provinces, we continued to employ people and injected capital into these communities. Since our inception we have invested $2.5 billion in capital spending in western Canada. In 2009, ARC spent a total of $360 million in capital expenditures with a significant portion of these monies being spent in rural
communities and being directed to local suppliers. As the economy improved toward the latter part of 2009 and into 2010, ARC announced one of its largest capital programs of $610 million for 2010. Approximately $260 million of this is committed to increase production in our Montney assets in northeastern British Columbia. These assets are located near the town of Dawson Creek and our operations there employ people from that community. To ensure the stability of our balance sheet, we reduced our capital program in 2009 and also reduced our distribution payments to our unitholders. Even with the reductions, we paid out $1.28 per unit to our investors in 2009. To the end of December 2009, we have distributed a total of $3.5 billion ($24.98 per unit) since our inception in July 1996. Although at this point, as a trust, ARC does not pay corporate taxes, we contribute significantly to governments through the payments of royalties, property taxes and our investors are taxed on the distributions they receive. On January 1, 2010, ARC will be converting to a dividend paying corporation and would expect to allocate its cash flow towards funding a portion of capital expenditures, periodic debt repayments, site reclamation expenditures and cash payments to shareholders in the form of dividends. Current taxes payable by ARC after converting to a corporation will be subject to normal corporate tax rates. In addition to payments made to investors and governments, ARC also makes payments to landowners for access to the resources we are developing. In 2009, ARC paid a total of $32.9 million to landowners in the form of freehold surface lease payments and freehold royalty payments. Our commitments to create long-term value for our unitholders, employees, communities and governments, suppliers and other stakeholders have not changed. Our basic economic commitments remain and are as follows: • distributing income to unitholders; • reinvesting earnings in capital projects; • creating employment in our seven core areas and surrounding communities; and • preferring local suppliers.
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2007
2008
2009
Revenues
1,251.6 219.4 397.2 498.0 495.3 704.9
1,706.4 307.7 548.6 570.0 533.0 944.4
978.2 147.8 359.6 298.5 222.8 497.4
–
–
0.3
219.4 177.2 23.1 2.7 12.4
307.7 249.0 31.8 2.9 12.8
147.8 115.3 19.2 3.2 13.7
50.2 218.4 1.7
56.9 241.5 1.7
56.6 236.2 1.6
Total Royalties Capital Expenditures (1) Distributions to unitholders Net Income Cash Flow from Operating Activities
Taxes Capital and Other Taxes
Total Royalties & Lease Rentals Canadian Royalties Crown Royalties Freehold Royalties Crown Surface Lease Rental Freehold Surface Lease Rental
Stakeholder Economic Benefits Employee Payroll and benefits (2) Operating Expenses Community Investment (3)
(1) Excludes corporate acquisitions and property acquisitions net of property dispositions (2) Includes amounts booked to G&A, Operating Costs and Property Plant & Equipment (3) Contributions to charitable and non-profit organizations
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Our Corporate Responsibility
Performance Summary ARC is committed to measuring and reporting our sustainability performance in a transparent manner. When reliable data for performance indicators are not available, or when calculation
Production (BOE/day)
methodologies for different years vary considerably we have left a blank in the table. We have included footnotes to provide clarity on definitions, boundary conditions, and other explanations.
2007 62,723
2008 65,126
2009 63,538
Environment Greenhouse Gas Emissions • Absolute (CO2e tonnes/yr) (1) 725,770 750,586 • Intensity (CO2e/m3OÉ) 0.209 0.208 SO2 (tonnes/yr) 2,796 2,724 Benzene (tonnes/yr) 4.7 4.5 Flared gas (103m3/yr) 16,550 17,984 Vented gas (103m3/yr) 725 591 Solution gas conservation rate (%) 97.7 96.1 Water use (m3/yr) 406,365 566,558 Reclamation • Abandoned wells 985 1051 • Active reclamation ongoing 190 222 • Reclamation complete 483 634 • Certificates received 11 25 Spills and Leaks • Number of reportable spills 32 25 • Total volume (m3) 440 387 • Volume recovered (m3) 332 126 Number of fines and penalties 0 0
805,977 0.224 2,663 23,351 623 95.9 596,779 1099 240 619 3 21 293 238 0
Health and Safety Contractor and employee injury rates (per/200,000 hours worked) 0 0.23 Lost time frequency – Employee Lost time frequency – Contractor 0 0.17 Recordable frequency – Employee 0.94 0.23 Recordable frequency – Contractor 1.88 2 Fatalities – Employee/Contactor 0 0
0.22 0.20 1.32 1.77 0
Social Workforce profile • Full-time 378 403 • Part-time 18 26 ARC turnover (%) 4.83 6.71
427 23 4.35
Economic ($millions) Revenues 1,251.6 1,706.4 Royalties 219.4 307.7 Capital Expenditures (2) 397.2 548.6 Distributions 498.0 570.0 Net income 495.3 533.0 Cash flow from operating activities 704.9 944.4 Capital and other taxes - - Total Royalties & Lease Rentals • Canadian Royalties 219.4 307.7 • Crown Royalties 177.2 249.0 • Freehold Royalties 23.1 31.8 • Crown Surface Lease Rental 2.7 2.9 Stakeholder Economic Benefits • Employee payroll and benefits (4) 50.2 56.9 • Operating expenses 218.4 241.5 • Community Investment (3) 1.7 1.7
978.2 147.8 359.6 298.5 222.8 497.4 0.3 147.8 115.3 19.2 3.2 56.6 236.2 1.5
(1) The increase in 2006 CO2 emissions was a result of the December 2005 acquisition of very mature oil fields from another operator. (2) Excludes corporate acquisitions and property acquisitions net of property dispositions. (3) Contributions to charitable and non-profits organizations. (4) Includes amounts booked to G&A, Operating costs and property, plant and equipment.
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GRI Content Index Category
GRI Indicator Description
Strategy & Analysts 1.1 Organizational Profile 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 Report Parameters 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.10 3.11 3.12 3.13 Governance, Commitments & Engagement 4.1 4.2 4.3 4.4 4.9 4.12 4.14 4.15 4.16 Economic EC1 Environmental EN8 EN16 EN20 EN23 EN28 Social LA1 LA2 LA4 LA7 LA13 HR4 SO5 SO6 PR8 N/A = not applicable
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Our Corporate Responsibility
President’s statement Company name Primary brands, products, and/or services Operational structure Location of headquarters Countries where ARC operates Nature of ownership and legal form Nature of markets served Scale of the company Significant changes during reporting period Awards received Reporting period Date of most recent previous report Reporting cycle Contact point for questions Process for defining report content Boundary of report Limitations on report scope or boundary Basis for reporting on non-wholly owned operations Explanation of information restatements Significant changes in measurement List of GRI indicators addressed Policy and current practice on external assurance of report
Page # 4-6 2 2 2 2 2 2 2 2, 4-6 4-6 inside back cover 3 3 3, 5 inside back cover 3, 5 3, 5 3, 5 N/A 3 N/A 24 3
Governance structure, including major committees under the Board 7 Independence of Board chair 8 Independent, non-executive directors on Board 8 Mechanisms for shareholder participation 8 Organizational structure for economic, environmental and social management 8 Externally developed economic, environmental, and social charters, principles, or other initiatives 9 Stakeholder groups engaged 9 Basis for identification and selection of stakeholders with whom to engage 9 Approaches to stakeholder consultation 9 Direct economic value generated and distributed 7, 22 Total water withdrawal by source 10, 23 Total direct and indirect greenhouse gas emissions 10, 23 NO, SO, and other significant emissions 23 Total number and volume of significant spills 23 Environmental non-compliance and fines 23 Breakdown of workforce 18 Total number and rate of employee turnover 18 Employees covered by collective bargaining agreements N/A Standard injury and lost day rates and fatalities 15 Diversity 18 Total number of incidents of discrimination and actions taken N/A Participation in public policy development 9 Contributions to political parties 9 Privacy complaints N/A
Contact and Feedback We welcome and value your feedback on this report and our corporate responsibility activities. If you have any questions, comments or concerns about this report, please contact investor relations at: ARC ENERGY TRUST 1200, 308 4 Avenue SW Calgary AB T2P 0H7 ir@arcresources.com 403.503.8600
1.888.272.4900
Affiliations, Participation and Recognition
In 2003, ARC’s first year of reporting to the CAPP Stewardship program, we achieved Gold level. ARC has achieved Platinum level ever since.
In 2007, ARC was added to the JSI, a common stock index of 60 Canadian companies that pass a set of broadly based environmental, social and governance rating criteria.
CARBON DISCLOSURE PROJECTS ARC responded to the 2008 CDP questionnaire, and was recognized as being one of Canada’s Climate Disclosure Leaders.
Measurement Abbreviations bbls BOE CO2e Ktonnes Mcf MMcf MMcfe m3 m3OE 103m3
barrels barrel of oil equivalent carbon dioxide equivalent kilotonnes thousand cubic feet million cubic feet million cubic feet equivalent cubic metres cubic metres of oil equivalent thousand cubic metres
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ARC RESOURCES LTD 1200, 308 4 Avenue SW Calgary AB T2P 0H7 1.888.272.4900 403.503.8600 www.arcresources.com